Question 1

When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

Accepted Answer

A) True 
 B)False

Question 2

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

Accepted Answer

A)  new firms to enter the market. 
B)  the market price to rise. 
C)  its profits to rise. 
D)  Both b and c are correct. 
A)  new firms to enter the market. 
B)  the market price to rise. 
C)  its profits to rise. 
D)  Both b and c are correct.

Question 3

In the long run, assuming that the owner of a firm in a competitive industry has positive opportunity costs, she

Accepted Answer

A)  should exit the industry unless her economic profits are positive. 
B)  will earn zero accounting profits but positive economic profits. 
C)  will earn zero economic profits but positive accounting profits. 
D)  should ignore opportunity costs because they are a type of sunk cost that disappears in the long run. 
A)  should exit the industry unless her economic profits are positive. 
B)  will earn zero accounting profits but positive economic profits. 
C)  will earn zero economic profits but positive accounting profits. 
D)  should ignore opportunity costs because they are a type of sunk cost that disappears in the long run.

Question 4

Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-8. The firm should not produce an output level beyond

Accepted Answer

A)  4 units. 
B)  5 units. 
C)  6 units. 
D)  7 units. 
A)  4 units. 
B)  5 units. 
C)  6 units. 
D)  7 units.

Question 5

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

Accepted Answer

A)  average revenue exceeds marginal cost. 
B)  the firm is earning a positive profit. 
C)  decreasing output would increase the firm's profit. 
D)  All of the above are correct. 
A)  average revenue exceeds marginal cost. 
B)  the firm is earning a positive profit. 
C)  decreasing output would increase the firm's profit. 
D)  All of the above are correct.

Question 6

In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run?

Accepted Answer

A)  $0 per unit 
B)  $1 per unit 
C)  $2 per unit 
D)  $3 per unit 
A)  $0 per unit 
B)  $1 per unit 
C)  $2 per unit 
D)  $3 per unit

Question 7

Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
-When the firm produces and sells 150 units of output, its average total cost is $24.50.
-When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. Suppose the firm is currently producing and selling 150 units of output. Should the firm increase its output to 151 units?

Accepted Answer

A)  Yes, because the marginal revenue exceeds the marginal cost. 
B)  Yes, because the marginal revenue exceeds the average total cost. 
C)  No, because the marginal cost exceeds the marginal revenue. 
D)  No, because the average total cost exceeds the marginal revenue. 
A)  Yes, because the marginal revenue exceeds the marginal cost. 
B)  Yes, because the marginal revenue exceeds the average total cost. 
C)  No, because the marginal cost exceeds the marginal revenue. 
D)  No, because the average total cost exceeds the marginal revenue.

Question 8

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the unit for $6. The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

Accepted Answer

A) True 
 B)False

Question 9

Table 14-1  
-Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand curve faced by a firm in a

Accepted Answer

A)  monopoly. 
B)  concentrated market. 
C)  competitive market. 
D)  strategic market. 
A)  monopoly. 
B)  concentrated market. 
C)  competitive market. 
D)  strategic market.

Question 10

If there is an increase in market demand in a perfectly competitive market, then in the short run prices will

Accepted Answer

A)  rise. 
B)  remain unchanged at the minimum of average total cost. 
C)  fall. 
D)  remain unchanged at the minimum of marginal cost. 
A)  rise. 
B)  remain unchanged at the minimum of average total cost. 
C)  fall. 
D)  remain unchanged at the minimum of marginal cost.

Question 11

Figure 14-14  
-Refer to Figure 14-14. Suppose a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P1 to P2. Which of the following could explain this observation?

Accepted Answer

A)  The entry of new firms into the market. 
B)  The exit of existing consumers from the market. 
C)  An increase in market supply from S0 to S1. 
D)  An increase in market demand from D0 to D1. 
A)  The entry of new firms into the market. 
B)  The exit of existing consumers from the market. 
C)  An increase in market supply from S0 to S1. 
D)  An increase in market demand from D0 to D1.

Question 12

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should

Accepted Answer

A)  make more than 20 wedding cakes per month. 
B)  make fewer than 20 wedding cakes per month. 
C)  continue to make 20 wedding cakes per month. 
D)  We do not have enough information to answer the question. 
A)  make more than 20 wedding cakes per month. 
B)  make fewer than 20 wedding cakes per month. 
C)  continue to make 20 wedding cakes per month. 
D)  We do not have enough information to answer the question.

Question 13

The long-run supply curve for a competitive industry

Accepted Answer

A)  may be horizontal if entry into the industry lowers average total cost. 
B)  may be upward-sloping if higher-cost firms enter the industry. 
C)  will be horizontal if there is free entry into the industry. 
D)  will be upward-sloping if there are barriers to entry into the industry. 
A)  may be horizontal if entry into the industry lowers average total cost. 
B)  may be upward-sloping if higher-cost firms enter the industry. 
C)  will be horizontal if there is free entry into the industry. 
D)  will be upward-sloping if there are barriers to entry into the industry.

Question 14

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:  
-Refer to Figure 14-5. In the short run, if the market price is higher than P1 but less than P4, individual firms in a competitive industry will earn

Accepted Answer

A)  positive profits. 
B)  zero profits. 
C)  losses but will remain in business. 
D)  losses and will shut down. 
A)  positive profits. 
B)  zero profits. 
C)  losses but will remain in business. 
D)  losses and will shut down.

Question 15

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:  
-Refer to Table 14-10. Which level of production in the table has the lowest average variable cost?

Accepted Answer

A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units 
A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units

Question 16

Which of the following is not a characteristic of a perfectly competitive market?

Accepted Answer

A)  Firms are price takers. 
B)  Firms have difficulty entering the market. 
C)  There are many sellers in the market. 
D)  Goods offered for sale are largely the same. 
A)  Firms are price takers. 
B)  Firms have difficulty entering the market. 
C)  There are many sellers in the market. 
D)  Goods offered for sale are largely the same.

Question 17

Table 14-12
Bill's Birdhouses  
-Refer to Table 14-12. What is the marginal cost of the 8th unit?

Accepted Answer

A)  $0 
B)  $72.75 
C)  $120 
D)  $502 
A)  $0 
B)  $72.75 
C)  $120 
D)  $502

Question 18

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is

Accepted Answer

A)  zero. 
B)  equal to the industry profits. 
C)  the market supply curve. 
D)  a horizontal line. 
A)  zero. 
B)  equal to the industry profits. 
C)  the market supply curve. 
D)  a horizontal line.

Question 19

When firms have an incentive to exit a competitive market, their exit will

Accepted Answer

A)  lower the market price. 
B)  necessarily raise the costs for the firms that remain in the market. 
C)  raise the profits of the firms that remain in the market. 
D)  shift the demand for the product to the left. 
A)  lower the market price. 
B)  necessarily raise the costs for the firms that remain in the market. 
C)  raise the profits of the firms that remain in the market. 
D)  shift the demand for the product to the left.

Question 20

Figure 14-7  
-Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is

Accepted Answer

A)  $16,500. 
B)  $20,375. 
C)  $25,750. 
D)  $90,125. 
A)  $16,500. 
B)  $20,375. 
C)  $25,750. 
D)  $90,125.

Exam 14: Firms in Competitive Markets

When economic profits are zero in equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect

In the long run, assuming that the owner of a firm in a competitive industry has positive opportunity costs, she

Table 14-8 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-8. The firm should not produce an output level beyond

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run?

A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the unit for $6. The firm should produce more than 100 units in order to maximize its profits (or minimize its losses).

Table 14-1 -Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand curve faced by a firm in a

If there is an increase in market demand in a perfectly competitive market, then in the short run prices will

Figure 14-14 -Refer to Figure 14-14. Suppose a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P1 to P2. Which of the following could explain this observation?

The long-run supply curve for a competitive industry

Figure 14-5 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-5. In the short run, if the market price is higher than P1 but less than P4, individual firms in a competitive industry will earn

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. Which level of production in the table has the lowest average variable cost?

Which of the following is not a characteristic of a perfectly competitive market?

Table 14-12 Bill's Birdhouses -Refer to Table 14-12. What is the marginal cost of the 8th unit?

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is

When firms have an incentive to exit a competitive market, their exit will

Figure 14-7 -Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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